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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI S. RIFAUR RAHMAN
PER S. RIFAUR RAHMAN, A.M.
The aforesaid cross appeals for the assessment year 2013–14 and 2015–16 and an appeal by the assessee for the assessment year 2016–17. All these appeals have been filed by either parties
3 Sai Ashray Developers Pvt. Ltd. challenging separate orders of even date 12th February 2019, passed by the learned CIT(A)–54, Mumbai.
The brief facts of the case are, the assessee is engaged in the business of construction. These appeals filed before us involves around the project undertaken by the assessee called “Prasadam” and the issue involved relating to on–money received in the above said project after a search operation conducted under section 132 of the Income Tax Act, 1961 (for short "the Act") was conducted in the Ahuja group of cases on 25th June 2015, and incriminating data in the form of loose papers and digital form relating to the tax evasion were found and seized. The premises of Shri Sunil Chowdhary, driver of Shri Jagdish Ahuja (promoter of the group) were also searched and parallel books of account of the Ahuja group were found in his premises. The analysis of the data found was confronted to the promoter Mr. Jagdish Ahuja, who had admitted to receiving on–money in various projects undertaken by the group. Accordingly, notice under section 153C of the Act was issued to the assessee on the basis of the data found during the search. Mr. Jagdish Ahuja, promoter of the group has clearly admitted to receiving on–money which was a part of the parallel books of account maintained by him. On the basis of the statement and the corroborative evidences found during the search, the Assessing Officer issued a show cause notice to the assessee
4 Sai Ashray Developers Pvt. Ltd. proposing to make an addition of the on–money received. The Assessing Officer listed the receipt of year–wise on–money received by the assessee company are listed below:–
Project Name Asst. Year Amount PRASADAM 2012–13 29,00,001 PRASADAM 2013–14 33,10,34,600 PRASADAM 2014–15 6,68,00,000 PRASADAM 2015–16 25,91,94,000 PRASADAM 2016–17 1,64,800 Total:– 66,00,93,401
In response to the show cause notice, the assessee replied that the project „Prasadam‟ was at a very initial stage and there is hardly any construction cost which was incurred. Since it was in an initial stage, there is no question of taxing any income. Further, it was submitted without prejudice plea that in the event of taxing the cash sales for the money received during this assessment year as an on– money, the entire amount of cash sales could not be brought to tax, but only the net income therefrom. Also it was submitted that it should be taxed only in the year in which the project is completed or when the sale is in respect of the said transactions are offered to tax. The Assessing Officer rejected the submissions of the assessee and according to the Assessing Officer the income which was proposed to be taxed was not something which was recorded in the books of 5 Sai Ashray Developers Pvt. Ltd. account of the assessee. This would not have offered to tax, had the search not taken place. Further he observed that the assessee had not given the details of the person who had actually paid the on money like the name, PAN, address and confirmation from those parties. Accordingly, the Assessing Officer held that the on money received has to be taxed under section 68 of the Act. Accordingly, he made an addition based on the above chart in the respective assessment years. Aggrieved with the above additions, assessee filed appeals before the first appellate authority. Before the learned CIT(A), the assessee filed detailed submissions for objecting for making addition of total on money received during the assessment year and making a submission that only net profit should be brought to tax on total on–money received. Further it was submitted that assessee and other group companies represented before the Settlement Commission the issue of determining the percentage of profit on the on–money, which was accepted by Settlement Commission to tax the profit element on the receipt of on money @12% and also made a plea that the income should be taxed in the year of realisation of the profit.
After considering the detailed submissions of the assessee, the learned CIT(A) observed that it is accepted and admitted facts that assessee has received on money in the projects undertaken by it. However, he observed that the assessee group companies had also 6 Sai Ashray Developers Pvt. Ltd. offered the on money received before settlement commission where five entities of the group made an application. He observed that this issue was present in three concerns of the Ahuja a group which approached the Settlement Commission and had offered 12% of the on–money as income and the same was accepted by the Settlement Commission. He observed that the contention of the assessee that the money of the entire group including that of the assessee was offered before the Settlement Commission, which was evident from the record submitted. However, he rejected the above contention and observed that the income of the assessee was never offered before Settlement Commission and observed that the income has to be taxed in the hands of the right person and not any other person. Further, the assessee submitted before the learned CIT(A) that the offer @12% of money received was accepted by Settlement Commission, the same has to be applied in the case of the assessee also. The learned CIT(A) rejected this submission also and observed that the acceptance of Settlement Commission of on money received as reasonable is relevant to the facts pertaining to the assessee before it, the same cannot be blindly applied to all other cases. He also observed that at best the decision of the Settlement Commission can only be a guiding factor and cannot be binding in other cases.
7 Sai Ashray Developers Pvt. Ltd.
5. Further, the assessee submitted before the learned CIT(A) that the on money should be taxed in the year of completion of the project or the year in which the corresponding sales are shown. The learned CIT(A) observed that the assessee had admitted to receiving the on– money, no further details as to the flat numbers for which the on money received or parties who have made the payment in spite of a specific query in this case by the Assessing Officer it was not furnished. He observed that even during appellate proceedings, the assessee could not furnish any details regarding this amount and this is not forming the part of the regular books of accounts nor the exact source is proved by the assessee. Further, he observed that if the assessee takes inordinate time to complete the project or abandons the project and never completes it, the money received during the year will never be brought to tax. The learned CIT(A) observed that assessee relied on the decision of the Tribunal, Ahmadabad Bench, in M/s. DR Construction v/s ITO, ITA No.2735/Ahd./2010. The learned CIT(A) distinguish the facts in the above case and observed that in that case assessee had declared the list of the buyers from whom on– money was received. He observed that in this case the on–money received could be identified from the name of the project and the assessee could not furnish the complete details of the buyers or confirmations from them both at the assessment and appellate stages. Accordingly, he held that the amount of on money has to be taxed in 8 Sai Ashray Developers Pvt. Ltd. the year of receipt which is the relevant assessment year which is under consideration.
Further, it is submitted by the assessee before the learned CIT(A) that there is no dispute about the fact that the income brought to tax is on money receipt from sale of flats, the Department also had referred to this income as on–money. Therefore, the same has to be brought to tax as business receipt and not under section 68 of the Act as unexplained cash credit. The learned CIT(A) observed that Assessing Officer also refer to this income as on money/Cash sales in the assessment order but has ultimately brought to tax as unexplained cash credit under section 68 of the Act. He referred the matter to the Assessing Officer vide letter dated 2nd January 2019, directing him to verify the seized material and confirm whether the contention of the assessee i.e., treatment of this income as on–money and, therefore, as business receipt is correct or not. In response, the Assessing Officer, vide his report dated 10th January 2019, by reference to the list of parties submitted by the assessee from whom on–money is received and submitted that the PAN is not mentioned in some cases and no letters from the said persons was filed confirming that they had given on money to the assessee. Since the assessee had failed to satisfactorily explained the nature and source of credits with evidences, the Assessing Officer stated that the amounts were 9 Sai Ashray Developers Pvt. Ltd. correctly added under section 68 and not as business receipts. The learned CIT(A) observed that the Assessing Officer’s report is completely silent on the main issue i.e., the status of these receipts as per the seized material. He observed that there is no mention of the seized material and the Assessing Officer’s report, on the other hand, the assessee was also contending all along that the receipts are on account of on money and it was recorded as such in the parallel books of account. He observed that in some of the cases of the group, 12% of the same was offered as income before the settlement commission and the same was accepted. From the facts as emerging from the material on record and the assessee’s averments, it could be concluded that the entries made in the parallel books of account are regarding the on money receipts by the assessee. The source is explained as being cash sales from the respective projects, therefore, he held that it has to be treated as business receipts and not cash credit under section 68 of the Act.
The learned CIT(A) observed that next issue is the question of the percentage of money which has to be brought to tax. He observed that it is the assessee’s contention that the entire on–money cannot be taxed because of substantial amount. In fact, the entire amount was incurred as expenditure. The material evidencing the receipt of on– money or the parallel books of accounts maintained by the assessee
10 Sai Ashray Developers Pvt. Ltd. group. These parallel books of accounts also have a record of cash expenses. He observed that the net result as per these parallel books of account is a loss. According to the learned CIT(A), the cash expenses if exceeding ₹ 20,000, has to be disallowed under section 40A(3) of the Act, but the details of exact expenses was not furnished. He observed that various Courts have held that in a case of receipt of on–money, not the entire on–money can be taxed, but it is only a percentage of profit that can be taxed. He came to conclusion by relying on the decisions of Hon’ble Gujarata High Court in the case of Panna Corporation and 325 of 2000, Hon'ble Jurisdictional High Court and the Tribunal, the learned CIT(A) held that in view of the above judgments including that of the binding judgment of the Hon'ble Jurisdictional High Court, it is held that the ends of justice would be made if the addition on account of on money is restricted to 25% of the on–money received. Accordingly, he partly allowed the appeal filed by the assessee.
Aggrieved with the above order, both Revenue as well as assessee are in appeal before us raising following grounds of appeal:
Grounds raised by the assessee in ITA no.2967/Mum./2019 – A.Y. 2013-14
1. The Ld. CIT(A) erred in confirming the addition of Rs.4,46,24,219/- being 25% of on money of Rs.17,84,96,880/- without appreciating that the income, if any, quantified on the amount of on money ought to be taxed only in the years in which project has completed construction in accordance to the 11 Sai Ashray Developers Pvt. Ltd. conditions prescribed as per the Revised Guidance Note of 2012 issued by lCAl and thus, the income estimated @25% of on money and taxed in the year of receipt is unjustified and liable to be deleted.
2. The Ld. ClT(A) failed to appreciate that relevant working as per the conditions prescribed in the Revised Guidance Note of 2012 issued by ICAI was duly filed before the Ld. ClT(A) and according to which, the income, if any, quantified in respect of on money could Not be taxed in the relevant year as the conditions and parameters prescribed in Revised Guidance Note of 2012 issued by ICAI for taxing income from project were not satisfied in the relevant year and hence, whatever income quantified from the construction project ought to be taxed in accordance with the Revised Guidance Note of2012 issued by lCAl and thus, the income estimated from on money and taxed in the year of receipt is unjustified and liable to be deleted.
3. Without prejudice to the above, the Ld. CIT(A) has erred in estimating the income @25% of on money received without appreciating the fact that as per parallel books of account, the overall group had incurred huge loss and income from on money was estimated @12% in other group entities before the Hon'ble Settlement Commission and the same was accepted @12% and hence, the income from on money may be estimated @ 12% as against estimated @25% by the CIT(A) and accordingly, relief may be given to the appellant. Grounds raised by the Revenue in ITA no.2891/Mum./2019 – A.Y. 2013-14 1. "Whether on the facts and circumstances of the case and in law the CIT(Al erred in holding that the cash received by the assessee was in the nature of business receipt and could not be treated as income u/s.68 when the assessee did not discharge its onus and the identity, genuineness of the transaction and creditworthiness of the parties have remained unexplained ?" "Whether on the facts and circumstances of the case and in law the CIT(Al erred in restricting the disallowance @ 25% of the cash received when no evidence of expenditure of balance 75% of the cash was produced by the assessee and therefore genuineness and allowability of the same could not be examined?" Grounds raised by the Assessee in ITA no.2968/Mum./2019 – A.Y. 2015-16 12 Sai Ashray Developers Pvt. Ltd.
The Ld. CIT(A) erred in confirming the addition of Rs.82,75,000/- being 25% of on money of Rs.3,31,00,000/- without appreciating that the income, if any, quantified on the amount of on money ought to be taxed only in the year/s in which project has completed construction in accordance to the conditions prescribed as per the Revised Guidance Note of 2012 issued by ICAI and thus, the income estimated @25% of on money and taxed in the year of receipt is unjustified and liable to be deleted.
2. The Ld. CIT(A) failed to appreciate that relevant working as per the conditions prescribed in the Revised Guidance Note of 2012 issued by ICAI was duly filed before the Ld. ClT(A) and according to which, the income, if any, quantified in respect of on money could Not be taxed in the relevant year as the conditions and parameters prescribed in Revised Guidance Note of 2012 issued by ICAI for taxing income from project were not satisfied in the relevant year and hence, whatever income quantified from the construction project ought to be taxed in accordance with the Revised Guidance Note of 2012 issued by ICAI and thus, the income estimated from on money and taxed in the year of receipt is unjustified and liable to be deleted.”
3. Without prejudice to the above, the Ld. CIT(A) has erred in estimating the income @25% of on money received without appreciating the fact that as per parallel books of account, the group had incurred overall huge loss and income from on money was estimated @12% in other group entities before the Hon'ble Settlement Commission ~he same was accepted @12% and hence, the income from on money may be estimated @12% as against estimated @25% by the Ld. CIT(A) and accordingly, relief may be given to the appellant. Addition of Rs.l,07,703/- as income from inflation of expenses 4. The Ld. CIT(A) erred in confirming addition of Rs.1,07,703/- being income @25% of inflation of expenses of Rs.4,30,810/- without appreciating that the AO has failed to give details of bifurcation of inflation of expenses as per seized records and correlation of the same with the expenses claimed in the profit and loss account and hence, the addition confirmed @25% of inflation of expenses is without any justification and liable to be deleted.
Without prejudice to the above and without accepting and admitting, the Ld. CIT(A) failed to appreciate that as per parallel books of account, the group had overall incurred huge loss and income from inflation of expense was treated as part of unaccounted turnover and estimated income thereof @12% in 13 Sai Ashray Developers Pvt. Ltd. other group entities before the Hon'ble Settlement Commission and the Settlement Commission accepted the same @12% and hence, the income from inflation of expenses may be estimated @12% as against estimated @25% by the Ld. CIT(A) and accordingly, relief may be given to the appellant.” Grounds raised
by the Revenue in ITA no.2892/Mum./2019 – A.Y. 2015-16 1. "Whether on the facts and circumstances of the case and in law the CIT(A) erred in holding that the cash received by the assessee was in the nature of business receipt and could not be treated as income u/s.68 when the assessee did not discharge -its onus and the identity, genuineness of the transaction and creditworthiness of the parties have remained unexplained ?" 2. "Whether on the facts and circumstances of the case and in law the CIT(A) erred in restricting the disallowance @ 25% of the cash received when no evidence of expenditure of balance 75% of the cash was produced by the assessee and therefore genuineness and allowability of the same could not be examined?" 3. "Whether on the facts and circumstances of the case and in law the CIT(A) erred in restricting the disallowance @ 25% of inflated expenses when no evidence of expenditure of balance 75% of the cash was produced by the assessee and therefore genuineness and allowability of the same could not be examined?" 4. "Whether on the facts and circumstances of the case and in law the CIT(A) erred in holding. that proviso to Sec.115BBE came into effect from 01.04.2017 therefore, brought forward business loss was allowable when the words "or set off of any loss" inserted in Sec.115BBE by the Finance Act, 2016 w.e.f. 01.04.2017 were clarificatory in nature as apparent from the Explanatory Notes to Finance Bill, 2016?" Grounds raised by the Assessee in ITA no.2969/Mum./2019 – A.Y. 2016-17
1. The Ld. CIT(A) erred in confirming the addition of Rs.41,200/- being 25% of on money of Rs.1,64,800/- without appreciating that the income, if any, quantified on the amount of on money ought to be taxed only in the year/s in which project has completed construction in accordance to the conditions prescribed as per the Revised Guidance Note of 2012 issued by ICAI and thus, 14 Sai Ashray Developers Pvt. Ltd. the income estimated @25% of on money and taxed in the year of receipt is unjustified and liable to be deleted.
2. The Ld. CIT(A) failed to appreciate that relevant working as per the conditions prescribed in the Revised Guidance Note of 2012 issued by ICAI was duly filed before the Ld. CIT(A) and according to which, the income, if any, quantified in respect of on money could Not be taxed in the relevant year as the conditions and parameters prescribed in Revised Guidance Note of 2012 issued by ICAI for taxing income from project were not satisfied in the relevant year and hence, whatever income quantified from the construction project ought to be taxed in accordance with the Revised Guidance Note of 2012 issued by ICAI and thus, the income estimated from on money and taxed in the year of receipt is unjustified and liable to be deleted.
3. Without prejudice to the above, the Ld. CIT(A) has erred in estimating the income @25% of on money received without appreciating the fact that as per parallel books of account, the overall group had incurred huge loss and income from on money was estimated @12% in other group entities before the Hon'ble Settlement Commission and the same was accepted @12% and hence, the income from on-money may be estimated @ 12% as against estimated @ 25% by the ld. CIT(A) and accordingly, relief may be given to the appellant.”
Before us learned Counsel for the assessee submitted that the grounds no.1 and 2, raised by the assessee are relating to year of taxability of on–money and he brought to our notice the findings of the learned CIT(A) in his order at Para–4.8 and submitted that this issue is covered by the order of Co–ordinate bench in the case of Tulip Land And Developers P. Ltd. v/s DCIT, 3727/Mum./2019, dated 10th February 2021, it is a decision in the case of the sister concern of the assessee wherein it was held that on money has to be taxed as per the method of accounting followed by the assessee. With regard to ground No.3, the addition on account of 25% of the on–
15 Sai Ashray Developers Pvt. Ltd. money sustained by the learned CIT(A) in his order. He submitted that this issue also covered by the orders of the Co–ordinate Bench in M/s. Bhalchandra Trading P. Ltd. v/s DCIT, ITA No.2977–2978/Mum./2019, dated 25th February 2021) wherein it was held that the addition has to be upheld @12% of the on–money based on the order passed by the Settlement Commission in the case of group companies of the assessee.
With regard to other appeals of the assessee in assessment year 2015–16 and 2016–17, he submitted that with regard to grounds no.1, 2 and 3, the issues are common to the assessment year 2013- 14. With regard to grounds No.4 and 5 raised by the assessee in assessment year 2015–16, which relate to the addition on account of inflation of expenses, he submitted that this issue also covered by the order of the coordinate bench in the case of M/s. Bhalchandra Trading P. Ltd. (supra) wherein the addition was upheld @12% of the inflation of expenses following the order passed by the Settlement Commission in the case of group concerns of the assessee.
Further, he submitted with the permission of the Bench that the issue in the Department appeals in grounds no.1 and 2, are also covered by the decision of Co–ordinate Bench in Tulip Land and Developers Pvt. Ltd. (supra) wherein the addition was upheld @12% of on money following the decision passed by the Settlement Commission
16 Sai Ashray Developers Pvt. Ltd. in the case of group concerns of the assessee. The grounds raised by the Revenue are common in assessment year 2013–14 and 2015–16 except ground no.4, in assessment year 2015–16. The learned Counsel for the assessee submitted that in case the Bench decides the issue of additions under section 68 of the Act against the Revenue then this ground of appeal will becomes academic.
12. On the other hand, the learned Departmental Representative relied on the orders passed by the lower authorities and agreed that most of the grounds are covered in the case of Tulip Land Developers (supra) and Bhalchandra Trading P. Ltd. (supra). However, he argued that the issues in the appeals under consideration have to be considered independently.
13. Considered the rival submissions and material on record. We noted that in these appeals the issue of on money received by the assessee is proved beyond doubt from the records found during search proceedings and subsequent acceptance by the key personal of the Ahuja group. The issue before us is only consideration of the above said on money to be taxed under section 68 of the Act or Based on the findings of the learned CIT(A) that receipt of on money has to be taxed only on net income and estimated net income @25% of the gross on money received. We notice from the submissions of the learned Counsel for the assessee that the above said issues are already
17 Sai Ashray Developers Pvt. Ltd. considered by the Co–ordinate Bench in Tulip Land And Developers (supra) and Bhalchandra Trading P. Ltd. (supra) and decided the issue in favour of the assessee in the appeal filed by the assessee and dismissed the issues raised by the Revenue. For the sake of clarity, it is reproduced below: Bhalchandra Trading Pvt. Ltd. v/s DCIT ITA no.2977–2978/Mum./2019 Order dated 25.05.2021 “7.1. We have heard ld. DR and perused the materials available on record. We find that the ld. AO had proceeded to make an addition u/s.68 of the Act towards on-money received by the assessee for sale of flats. It was also submitted by the assessee before the ld. AO that there were certain unaccounted business expenses made by the assessee out of the on-money received and hence, only profit element thereon could be added and not the entire on-money receipts. We find that the ld. AO ignoring the entire contentions of the assessee proceeded to tax the net on- money received of Rs.2,20,00,000/- in the A.Y.2014-15 by applying the provisions of Section 68 as unexplained cash credit. The ld. AO also observed that assessee has not provided the party-wise details of on-money receipt. The details of on-money received and on-money reversal for various assessment years are tabulated as under:-
Year On Money On Money Net On Money Received Reverse 2009-10 5,70,67,250/- 22,50,000/- 5,48,17,250/- 2010-11 2,52,54,500/- 4,81,50,000/- (2,28,95,500)/- 2011-12 Nil 1,21,17,250/- (1,21,17,250)/- 2014-15 3,35,00,000/- 1,15,00,000/- 2,20,00,000/- 2015-16 38,80,000/- 65,00,000/- (26,20,000)/- TOTAL 11,97,01,750/- 8,05,17,250/- 3,91,84,500 7.2. We find that the assessee‟s group concerns also had offered 12% of on-money receipts as its income before the Hon‟ble Income Tax Settlement Commission. The ld. CIT(A) categorically admitted in his order that the said receipt represents on-money received on sale of flats from which certain expenses were also incurred by the assessee and hence, only the profit element thereof could be brought to tax and not the entire on-money receipts. We find that the ld. CIT(A) accordingly estimated the 18 Sai Ashray Developers Pvt. Ltd. profit element to be at 25% and restricted the addition to Rs.55 lakhs as against Rs.2,20,00,000 made by the ld. AO. Against this finding of the ld. CIT(A), the revenue is not in appeal before us. 7.3. It is not in dispute that assessee had indeed received on- money for sale of flats to the tune of Rs.2,20,00,000/- during the year under consideration. It is not in dispute that the assessee had incurred certain business expenses out of such on-money which are kept outside the books of accounts. Hence, it will be just and fair that only the profit element embedded on any such undisclosed transaction could be brought to tax on an estimated basis. The assessee had already pleaded that on-money transactions were offered by the assessee‟s group concerns @12% of on-money receipts before the Hon‟ble Income Tax Settlement Commission and the same has been accepted by the Settlement Commission. Hence, the data and information was indeed available with the ld. CIT(A) to have some rational basis to make profit estimation in the hands of the assessee herein by following 12% thereof from the order of Hon‟ble Income Tax Settlement Commission. Accordingly, we direct the ld. AO to add only 12% of on-money receipts as undisclosed income of the assessee for the year under consideration. Accordingly, the ground No.1 & 2 raised by the assessee is partly allowed.
With regard to grounds no.4 and 5, raised by the assessee in its appeal in assessment year 2015–16, this issue also considered by the Co–ordinate Bench in Bhalchandra Trading Pvt. Ltd. (supra) in favour of the assessee. Accordingly, the grounds raised by the assessee in assessment year 2013–14, 2015–16 and 2016–17 are allowed in favour of the assessee. Therefore, the appeals filed by the assessee are allowed.
With regard to appeals filed by the Revenue, we notice that the Co–ordinate Bench considered the issue in the case of Tulip Land Developers P. Ltd. (supra) and held against the Revenue. Therefore,
19 Sai Ashray Developers Pvt. Ltd. the appeals filed by the Revenue in assessment year 2013–14 and 2015–16 are dismissed.
With regard to ground no.3, raised by the Revenue in assessment year 2015–16, this issue is consequential to the ground No.4 of assessee’s appeal. Since we already adjudicated the issue in favour of the assessee, accordingly these grounds of appeal also dismissed.
17. With regard to ground No.4 raised by the Revenue in assessment year 2015–16 regarding application of provisions of section 115 BBE, we notice that the issue raised by the Revenue in ground No.1 is adjudicated against the Revenue, therefore, the issue raised in this ground becomes academic in nature. Therefore, this ground also raised by the Revenue is dismissed.
In the net result, the appeals filed by the assessee are allowed and appeals filed by the Revenue are dismissed. Order pronounced in the open court on 11.06.2021